5 Stocks Under $5 for 2013

The usual caveats apply, but these low-cost shares could net you big upside

Star Scientific

Star Scientific (NASDAQ:STSI) is a very speculative but fascinating company. It has long been working on smokeless tobacco products for those with a nicotine urge but an aversion to the harmful effects of cigarettes, as well as dietary supplements meant to be an alternative to smoking. Check out one of its flagship products, CigRx, here.

The angle is interesting. Smoking isn’t a growth industry, but smoking prevention seems to be gaining momentum big-time.

And beyond that, the company is also researching other tobacco-based drugs including — crazily enough — a potential cure for Alzheimer’s disease, as first riffed on by James Altucher over a year ago.

Of course, shares are off almost 60% so far in 2012 thanks to a massive legal battle with tobacco giant Reynolds American (NYSE:RAI) ended rather unfavorably for Star Scientific. Some folks had hoped for a payday in the hundreds of millions of dollars based on a patent dispute, but the result was a mere $5 million.

Disappointing, to be sure. But Star Scientific is not just a patent troll — they are developing legitimate products. Revenue has been steadily increasing, up year-over-year in seven out of the past eight quarters. The company is still bleeding cash, but the CEO and other insiders just threw $20 million of their own cash at Star Scientific because they believe in the company. That has to count for something.

There are very real risks for the company, including its continued losses and a still-significant portion of shares held short. But if you want a high-risk, high-reward play, STSI could be just the ticket in 2013.